Diverse sources attribute coining of the phrase "skin in the game" to Warren Buffet, although the New York Times reports he denies first use. According to Investopedia, Warren Buffett did use the phrase to refer to a situation in which highly-ranking insiders used their own money to buy stock in the company they were running. Putting money into a project, company or activity shows commitment and is the ultimate vote of confidence.
When applying for a business loan, why do you have to put money in to your company, your investment or your project? Why can’t the bank just loan 100%?
- Not confident or don’t believe in it enough to put your own money in? Why then should a bank be confident they get back what they put in?
- Risk sharing - A bank may be more willing to take on a little risk when you share the risk.
- By putting your own money in, there’s less of a chance you’ll walk away from it.
- When you put money in, this reduces your debt service and allows you to more easily qualify for a loan. Therefore, less stress is put on the business to turn an immediate profit so it can service the debt load.
- The more money you put into it, the less interest you will pay to the Bank.
- Putting money in will ultimately help your financial situation by adding to your net worth.
If you have "skin in game" when you apply for a business loan, you and your bank can be on the same team.
First Bank & Trust Company, one of the top community banks in the United States, is a diversified financial services firm with office locations in southwest Virginia – serving Blacksburg, Christiansburg and surrounding areas – northeast Tennessee, and the New River Valley and Shenandoah Valley of Virginia. Financial objectives are addressed by offering free checking products for personal and business accounts, and assessing lending solutions managed by mortgage, agricultural and commercial lending divisions. Comprehensive financial solutions are available through trust and brokerage service representatives. For businesses, First Bank & Trust specializes in business services, including online banking and online billpay, and business loans.
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